Green growth and sustainable development

Austria’s green economy flourishing but could do even better, OECD says

06/11/2013 - Environmental goods and services are now a bigger driver of Austria’s economy and job market than traditionally strong sectors like tourism and construction, thanks to the government’s policy of subsidising green investments, a new OECD report shows.

The OECD’s latest Environmental Performance Review of Austria gives a positive assessment of those policies so far, but notes that environmental performance could be improved more efficiently with a tax reform to shift the policy focus onto penalising polluters and away from heavy spending on subsidies.

The review shows that revenue from environmental goods and services reached almost EUR 33 billion in 2011. This corresponds to 10.8% of gross domestic product (GDP), or nearly twice that of the tourism sector.

This green growth has spurred job creation in the sector, even during the economic crisis. From 2008 to 2011, employment in the environmental sector increased by 2%, compared to just 0.4% jobs growth for the economy as a whole. Over 170,000 people, or almost 5% of the workforce, are employed in the environmental sector today, mainly in renewable energy, soil and water protection, and energy efficiency. The OECD report recommends greater co-ordination of environmental and employment policies to ensure that the creation of jobs in the green economy does not lead to losses elsewhere.

The report backs the socio-ecological tax reform that Austria has long been debating, which would shift some of the tax burden from labour to polluters, aiding both growth and employment. Austria has taken steps in this direction with a flight tax and a CO2 bonus/malus scheme for car registration taxes. Other measures, including a carbon tax, should be implemented to ensure that all sectors pay for their CO2 emissions.

Subsidies that represent a hidden risk to the environment, such as the tax treatment of company cars and the commuting allowance, should be reassessed, the OECD says.

“These transport subsidies are benefiting high earners while worsening air pollution, noise and traffic congestion,” said Simon Upton, Director of the OECD’s Environment Directorate. “Incentives are being applied the wrong way around – the polluter should pay, not everybody else.”

The OECD review also recommends a reappraisal of Austria’s bias towards costly subsidies to support green investments. More than 40% of the government’s environment-related expenditure goes on such subsidies – four times the euro area average.

One upside is that thanks to large subsidies, 19% of agricultural land is now farmed organically, making Austria the EU leader in moving away from fertilizers and pesticides.

As government spending shifts to renewables and energy efficiency, the OECD encourages Austria to ensure that investments are directed to projects in need of funding and avoid the generation of windfall profits for recipients. It calls for better co-operation between the local administrations, States (Länder) and federal government who share the responsibility for subsidies.

Despite many environmental strong points in Austria, such as the high quality of its drinking water and the high share of renewables in energy supply, there are still challenges.

Greenhouse gas emissions have fallen since the mid-2000s, but in 2011 they remained 6% higher than in 1990 and well above the Kyoto target, which calls for a 13% reduction on the 1990 level. Manufacturing industry and transport are the main contributors to emissions, with nearly a third of transport-related emissions related to “fuel tourism” – motorists who drive to Austria to fill up with its cheaper petrol or diesel.

Inland and cross-border traffic causes a high concentration of nitrogen oxides, whose levels remain stubbornly above the national limit. Pollution from particulates and ozone in cities is also higher than in most other EU countries.

Raising fuel tax rates, to bring them closer to the EU average, and scrapping some of the subsidies that encourage private car use and urban sprawl would lead to reduced emissions in Austria, according to the OECD’s review.

Background information

The Environmental Performance Review of Austria 2013 is the third of this type for Austria. It examines progress made since the previous review in 2003 and makes 27 recommendations. Alongside an assessment of steps taken towards achieving environmental goals and green growth, two topics are given particular emphasis: (1) measures to manage and adapt to climate-related risks and (2) the management of chemical risks.